How much do home builders profit? This is a really important question that anyone looking to start a business in real estate or construction needs to have answered. Considering the vast amount of diversity in the United States in terms of property value and what area home is built-in, there is no one clean, clear-cut answer as to how much profit home builders make. We can, however, go on averages and statistics.
Generally speaking, the average home builder in the United States makes about $36,000 per new home sale. This comes out to about $100,000 per year on average. The average gross profit for home builders is around 22%. It’s important to keep in mind that these are just average figures. Building a high-end home could net a home builder $80,000 or more in a single sale.
In this article, we will detail all the added costs that come along with building a home. We will also explain some of the processes involved, and we will explain how much profit home builders make.
- How Much Does It Cost To Build A New Home?
- Cost Of New Construction Homes & Profit Margins For Builders
- How Do Contractors Get Paid?
- The Breakdown
- What Is The Profit Margin For Small Home Builders?
- How Much Do Builders Make For Year
- How Much Does A Builder Make On A Million Dollar Home
- How Much Do Luxury Home Builders Make
How Much Does It Cost To Build A New Home?
There are many additional costs associated with building a new home that you may not consider right off the bat. The total cost of building a home is what determines the amount of profit a homebuilder can make on a given construction.
|Bed Rooms||Square Feet||Average Cost||Average Home Builder’s Profit|
|1||800||$80,000 – $160,000||$6,400 – $12,800|
|1||900||$90,000 – $180,000||$7,200 – $14,400|
|1-2||1,000||$100,000 – $200,000||$8,000 – $16,000|
|2||1,200||$120,000 – $240,000||$9,600 – $19,200|
|2||1,500||$150,000 – $300,000||$12,000 – $24,000|
|2-3||1,800||$180,000 – $360,000||$14,400 – $28,800|
|2-3||2,000||$200,000 – $400,000||$16,000 – $32,000|
|3||2,500||$250,000 – $500,000||$20,000 – $40,000|
|3||2,700||$270,000 – $540,000||$21,600 – $43,200|
|3-4||3,000||$300,000 – $600,000||$24,000 – $48,000|
|4||4,000||$400,000 – $800,000||$32,000 – $64,000|
|5||5,000||$500,000 – $1 million||$40,000 – $80,000|
Cost Of New Construction Homes & Profit Margins For Builders
Generally speaking, a home builder earns somewhere about $20,000 profit for every house that they build and sell. It’s important to take into consideration the fact that the cost of a new construction home will vary widely based on the materials used. Another powerful price driver is the location where the home is built in.
In general terms, a single-family house is worth between $225,000 on the low end and $500,000 on the high end. Larger, more lavish homes can cost millions of dollars or even 10s of millions of dollars to construct if they are built in certain areas, so that is another important thing to keep in mind.
There is more to building a home than you may realize. Here is a list and some information about a few of the many costs to consider when building a new home:
In order to build a home legally, the builder has to have licenses. There are fees to pay when it comes to getting these licenses.
Someone has to build the home. Even if you are in charge of the project, you are going to have to hire several additional people to build the house. These people are going to need to get paid.
A construction site is a dangerous place to work. Sometimes accidents happen, and it can totally shut down a project. For this and other reasons, insurance is required when building a home.
Many cities and municipalities have several additional fees that are in place when building a new home.
In addition to these fees, there may also be fees imposed by the owner of whatever community or neighborhood that you are building the new construction home in.
All those sidewalks, roads, and street signs aren’t free. Someone has to pay for them. When building a new home, the builder pays taxes in the form of sales tax when buying their materials.
There may also be additional taxes for building a home imposed by local and state governments.
The material to build a home is not free. Every piece has a cost. This must be accounted for. Make sure to pay at least 6 percent to account for fluctuating prices.
Average Home Builder Profit Per State
Below is a table that shows what an average home builder can expect in terms of the closing price and net profits, broken down by state.
|State||Average Sale Price||Average Home Builder Profit|
When it comes to profit margins for subcontractors and general contractors, they generally come out to be the same. So, for this reason, there is usually just a single contracting party involved when building a new construction home.
When it comes to getting paid, contractors earn a weekly check from the trade that they perform. So, the home builder has to provide this payment as what is called a ‘draw down’. In cases where the home builder makes a lump sum payment and pays the rest to the contractor after completion, the contractor takes the drawdown from the bank itself.
How Do Contractors Get Paid?
In this arrangement, the contractors essentially get paid by drawing on construction loans from the bank until the home builder makes the final payment. It’s important to keep in mind that any and all interest that is accrued in these loans during this process is the sole responsibility of the home builder.
This is a necessary part of home construction because it is exceedingly rare for a construction contractor to have enough available cash on hand to fund an entire construction project while also covering all of their living expenses.
There was a recent study performed by the NAHB (National Association of Home Buyers?) suggested that on average, high-end home builders have a revenue of around $16.2 million each year. About $13.2 million of that revenue, however, is spent on land, water, and other associated construction costs.
The remaining $3.1 million is the average gross profit for a high-end home builder. Net profit is the money you get to keep, though, and after paying all of the taxes and other associated costs, the average high-end home builder ends up with around $1 million in net profit a year.
These figures will vary drastically, but on average, a 2800 ft² three-bedroom new construction home costs roughly $498,700 to build. So, for a house like this, you can expect a profit of about $94,254, which comes out to around $16 profit per square foot.
When determining the cost of materials used, remember to pad your estimates. Remember, material prices are constantly fluctuating. You don’t want to quote $3.2 per square foot for something, only to get to Home Depot to realize its price has gone up to $3.5 per square foot.
Remember, if material costs are higher than expected, the padding you put into the material costs will cover the material prices. If material prices drop, on the other hand, you will be able to keep the difference in cost.
When determining the cost of a new construction home, the first thing you need to take into consideration is the floor plans.
After you study the floor plan, the very next thing to consider is, of course, the cost of all the materials that it’s going to take to build the house in the floor plan.
Once you have this information you can use it to determine the cost per square foot to build the home. Remember, if your estimate comes out to $500,000, then add your 6-9% profit margin and at least 5% padding. Doing this will give you a pretty good estimate of what the new construction house will cost.
What Is The Profit Margin For Small Home Builders?
Currently, the profit margin for small home builders sits at around 22 percent. The average profit for new construction homes changes yearly.
For instance, in 2018 the average gross profit margin for home builders was around 20%. The following year it rose to about 22%, and then in 2020, it sank to 16.5%.
This year is looking better, with the average gross profit for home building rising back to around 22%.
How Much Do Builders Make For Year
Generally speaking, the average home builder in the United States makes about $100,000 per year. It’s important to consider that this is an average figure and varies dramatically depending on many factors.
How Much Does A Builder Make On A Million Dollar Home
At an average of around a 20 percent gross profit margin, a home builder can expect to make about 200,000 dollars on a million-dollar home.
After paying all the taxes, fees, and other expenses, the net on a million-dollar home is about 80,000 dollars.
How Much Do Luxury Home Builders Make
That depends on your definition of a ‘luxury home’, but the average high-end home builder makes around $100,000 dollars per year.
When it comes to answering the question ‘How much do home builders profit?’, the answer can be somewhat all over the place. It really depends on the type of homes that you plan on building. Another important factor is where you plan on building the home.
In general, home builders in the USA earn around $36,000 for every new home they build and sell. This comes out to somewhere around $100,000 per year in net profit on average. If you plan on building higher-end, more prestigious homes in more attractive areas of the country, a home builder can expect to make $70,000 to $120,000 dollars in a single sale.
We hope this article helped you learn more about how much profit home builders make. Thanks for reading!